There was a time when the Canada Pension Plan Investment Board didn’t even make “alternative” investments. Now, Canada’s biggest pension fund says it is sifting through “alternative” forms of data to try to improve its investment decisions.

CPPIB has assembled what it calls a “data-driven edge” team, a small group of investors and data scientists that are experimenting with different kinds of information in making longer-term investment decisions, says Deborah Orida, senior managing director and global head of active equities at CPPIB.

“As we look to enhance that decision-making, one of the things that we’ve been focused on for the last couple of years is being able to use not only the traditional financial data that we get from the traditional sources like Bloomberg in making our investment decisions, but also the increasing volume of alternative data that is available,” Orida told the Financial Post in a phone interview from Hong Kong.

There has been much made of hedge funds and other investors trying to gain an edge with alternative data, such as information gleaned from satellite imagery of store parking lots.

CPPIB began assembling its own team, which currently has fewer than 10 full-time members, last summer.

One example of how it is already putting alternative data to use that Orida provided was the fund’s recent analysis of a pair of real-estate companies, one public and one private, for which CPPIB used a public registry of realtors in the U.S. to study their movements between firms. The data would be one piece of a bigger puzzle that the fund would be trying to solve in order to make its investment decisions.

“But by looking at this additional source of data, and being able to analyze that trend, we could gain insights about what was attracting agents to different companies,” Orida said.

It’s unlikely CPPIB is the only Canadian pension fund tapping into emerging forms of data either.

Ontario Teachers’ Pension Plan CEO Ron Mock. Teachers’ also appears to be tapping into new data sources.Kevin Van Paassen for National Post files

Teachers’ posting said the director would be leading a team of five to 15 employees.

CPPIB, which invests the funds of the Canada Pension Plan, is also diving deeper into new innovation-related ideas and technologies.

The fund recently advertised that it was looking to hire a director of innovation to help test out “emerging concepts and ideas” and expand CPPIB’s advanced analytics capabilities.

Along the same lines, CPPIB said recently that it was seeking a head of data and advanced analytics, billed as “a transformative role.”

CPPIB says the two jobs are new ones, as the fund tries to ensure that its talent and technology keep pace with its growth.

The price for all this remains to be seen; CPPIB will reveal its costs in an upcoming annual report.

But while CPPIB already has certain advantages over other investors — such as the steady flow of contributions and a much longer-term outlook — it’s always looking to make decisions on the basis of the best-available information, Orida said.

By looking at this additional source of data, and being able to analyze that trend, we could gain insights

Deborah Orida, CPPIB

Reams of data can also be used to feed various artificial intelligence technologies, and Orida said that CPPIB does employ machine-learning in its research. The example she gave for this was their thematic investing group researching automobility, such as trends around consumers moving from buying cars to buying rides off an app instead, or the evolution towards electric and autonomous vehicles.

Orida said the existing research had taken a more regional approach, but CPPIB, a global investor, had wondered if it made more sense to analyze the adoption trends based on certain characteristics, such as density or wealth. The fund used a machine-learning algorithm to group cities around the various attributes, which is insight it could also apply across its portfolio.

“So for example,” Orida said, “when you think about that evolution of moving from buying a car as a capital investment to consuming rides as a service, that’s going to impact how we think about long-term projections for toll roads, for airports that make a lot of their money from parking revenue, in our infrastructure team.”

Again, however, alternative data is not the be-all-end-all for CPPIB, as Orida noted when it came to their research of real-estate companies. The fund was not using the analysis alone to make an investment decision; rather, it was trying to respond to a question humans were asking and supplementing its other work.

“Ultimately, our investment decisions are still captured in making a financial forecast about a company and then discounting the cash flows back to figure out what price we would pay for it,” Orida said. “But when you’re forecasting those cash flows, the more information you could have about the industry trends and how they might impact the future of that company, my own view is that the better investment decision that you’ll make.”

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